Tariff hikes needed for monetising Rs 2 trn investment: Analysts on Jio 5G

Analysts at Jefferies said Jio's approach to 5G has striking similarities to its approach to 4G with the company investing aggressively-potentially ahead of time-to create a state of art network

Reliance Jio will have to hike tariff for monetising its Rs 2 trillion investment in 5G network, telecom sector analysts have said.

“With significant investment likely by telcos in 5G over the next 1-2 years, we see an increased probability of a tariff hike to ease the free cash flow impact, and continue to expect this to happen before the end of CY22,” Goldman Sachs said in its report.

On Monday, Reliance Industries Limited chairman Mukesh Ambani announced the rollout of 5G services in key metros including Mumbai, Delhi, Kolkata and Chennai by Diwali. The company will invest Rs two trillion to roll out a 5G network across the country by December-end.

Analysts at Jefferies said Jio’s approach to 5G has striking similarities to its approach to 4G with the company investing aggressively-potentially ahead of time to create a state of the art network. 

While the addition of home broadband subscribers and incremental market share gains in the mobile segment will add to its revenue, Jio will still need to earn $ 4-5 billion in revenue from enterprise applications/further tariff hikes, Jefferies said in its report.

Jio will deploy standalone technology for its 5G service that will be expanded across the country by the end of 2023.  Ambani said Jio’s 5G network will be the largest and most advanced in the world and will be able to deliver new services such as low latency connectivity, and massive machine-to-machine communication among others. The company is also targeting 100 million homes with fixed wireless access.

J P Morgan however believes that the capex burden and monetization potential of 5G standalone technology’s features remains a risk.

“The real-world applications and monetization potential of 5G SA’s non-speed advantages such as low latency and ability to handle massive machine communications are not proven. In addition, the capex to provide fixed wireless access at scale may prove prohibitive as scalability of FWA at 26GHz is poor at current network densities,” it said.